Study Finds Corporate-Only Tax Reform Could Hurt Small Businesses

A study completed by the Small Business Administration (SBA) found that corporate-only tax reform might cause many small businesses that file as pass-through entities to suffer the consequences of this one-sided solution.

While cutting costly tax breaks as a method of reducing corporate tax rates has been a popular selling point for the tax code overhaul, small businesses that file as individuals don’t benefit from a corporate rate cut but could still lose their tax breaks, placing higher burdens on these businesses.

Defined by the study as pass-through entities with less than $10 million in gross annual receipts, these small businesses account for about $40 billion in tax benefits, or one-third of the $161 billion spent each year on all business “tax expenditures.”

In a previous study, the Tax Foundation found that corporate-only reform causes higher burdens on individual tax rates and negatively impacts hiring, especially for the 80 percent of the construction industry comprised of pass-through entities.

To find a stronger way to judge the impact of tax reform on businesses, ABC became a founding member of the Coalition for Fair Effective Tax Rates, which supports using effective tax rates as the primary metric for success, thereby limiting any disproportionate impact on certain industries or corporate structures.